In December 2018, Chinese President Xi Jinping commemorated the 40th anniversary of Reform and Opening, praising the Chinese Communist Party (CCP) as the “backbone of the Chinese people and the Chinese nation." The CCP has relied upon rapid economic growth for its legitimacy to lead China for over four decades since the reforms of Deng Xiaoping in the late 1970s. But, economic development has been uneven and China today has huge inequality between its affluent cities and poor hinterland.
Managing economic growth and social policy while maintaining popular legitimacy is the greatest domestic challenge facing the CCP today.
China’s record-breaking economic growth is a well known economic and political phenomenon. Yet, sections of the populace threaten social unrest, dissatisfied after decades of economic reform, inequalities in living standards, and localised problems such as high unemployment, and the high cost of city housing.
In the last decade, a renewed focus on the development of a basic welfare state, with the provision of healthcare and other social goods, attempts to appease the dissatisfied populace in order to retain popular legitimacy. However, the CCP’s social policies often conflict with underlying structural policies for economic growth - another major concern for legitimacy - causing a trade-off between funding social policy initiatives and maintaining economic growth.
The CCP has committed to providing universal basic social goods, a goal that if fulfilled would strengthen its legitimacy. The CCP has undergone a massive program of poverty eradication, since 2002, including establishing a minimum living standard, rural pensions and income support schemes, abolishing rural taxes and setting up cooperative medical schemes. However, on top of a trade-off with economic growth, these policies were structurally flawed with minimal funding and limited reach as a result of fiscal decentralisation.
Fiscal decentralisation in China means that although the CCP sets national policies because they are implemented and financed at a local level, their success rates vary exceptionally according to the resources and political will of each individual locality. For example, the CCP encourages local city governments to supply more low-cost public housing. However, local governments can prioritise the needs of permanent urban residents over poor migrants because they get more financial return.
Fiscal decentralisation further widens the rural-urban divide, and could arguably undermine CCP popular legitimacy in areas of disadvantage. Although fiscal decentralisation creates an opportunity for the CCP to shift blame for unsatisfactory policy onto local governments, strengthening legitimacy at the top. Beijing warns against re-centralisation for fear local governments would lose incentives for economic growth. Therefore, fiscal decentralisation remains a delicate balancing act between CCP political control and economic success.
If we safely assume that the CCP’s top priority is regime legitimacy, then the Party will undergo continuous trade-offs over how it should maintain this legitimacy: sustaining nationwide economic growth with preferential policies resulting in unequal development; or increasing access to healthcare and other social goods, at the risk of denying economic growth? It’s a tough decision, to say the least.
Often the goals of economic growth and social policy issues are mutually exclusive, and therefore, the effectiveness of social policy nationwide is structurally and politically limited. This policy tension is increasingly threatening to the CCP.
Given China’s huge and economically polarised population, providing universal basic social goods is an incredible feat, and lifting several hundred million people out of poverty with minimal opposition or revolution is a testament to the CCP’s continuing popular legitimacy. For now, the trade-off seems to be working. But, with increasing incidents of social unrest, and an ageing population in greater demand for social welfare, CCP continual popular legitimacy cannot be assumed.
The key line from Xi’s speech at the 19th Party Congress in 2017, was the need to address the “contradiction between unbalanced and inadequate development and the people’s ever-growing needs for a better life”. The rest of the world waits in anticipation to see how Xi rises to the challenge.
Ciara Morris is a recent graduate of the University of Sydney with a Bachelor of Arts (Honours) in Government and International Relations and Chinese Studies. Ciara is currently National Director of Publications for the Australia-China Youth Association and intern coordinator at the Australian Institute of International Affairs NSW.